So "the illusion" is like a GPT or StableDiffusion model making stuff up based on conditioning. Nothing mysterious, we have AI that can do that. The same simulator predicts not just how the world will evolve, but also actions and their estimated rewards. It's an imagination based planning system.

Bringing all perceptions together into the simulation, integrating them into the same reference system, and using them to imagine, plan, act and learn - that could be consciousness.